Day: March 23, 2007

My friend Ji predicted the story I’m going to share today. It first became clear when the story broke that Google bowed out of the answers service and Yahoo slapped them around. While Techcrunch simply referred to this as Yahoo’s “Morale boost,” my friend pointed out that this could be the beginning of Yahoo’s come back in the search engine market.

It all started today when I read an article that talked about how few ads Google has compared to Live and Yahoo. The supposed reasoning is that Google serves less ads per page to reduce noise, which increases click rates in the long term. So on a search where Google only shows two ads, Yahoo shows eight. At first glance, Google is beating the pants off of Yahoo. Not only are their ads clearly less cluttered, but Google has 50% more results and a map with restaurant reviews.

But wait, scroll down to the bottom of Yahoo’s result page and notice this:

I don’t know about you, but if someone types in “San Francisco Sushi” and got that, I can’t see them ignoring that result.

This is Yahoo’s power play, and they’re doing it in relative stealth mode. Perhaps they don’t even realize just how ground breaking this can be. For example, if I search for “Which game console should I buy?”, on Google, I get a bunch of results from review sites. On Yahoo, I get all those, plus these:

As you can see, the potential is amazing. Yahoo may not have the biggest index or the best search algorithm, but who needs it when you can mine answers to common questions out of an Answers database! Yahoo shouldn’t be sidelining these results near the bottom. They should be right at the top, perhaps even displacing a few ads on the right. After all these years, we have come full circle to a search engine that performs best when it is literally asked a question.

This is “ask Jeeves” all over again. Except this one works.

Yahoo Answers is barely a year old. What happens in another two years when this service has fully matured and becomes far more ubiquitous? This won’t ever replace Google, but it has the potential to get users acquainted with asking questions on Yahoo, which has the residual effect of converting them over the long run. Google should be afraid of this application because it has the potential to steal a large slice of Google’s search engine pie.

Keep on eye on this feature as we should see it become a larger part of Yahoo’s search results this year (if they have half a brain).

Note: this was originally going to also cover Live’s shameless sponsored result for San Francisco Sushi that promoted something completely unrelated. I was also going to discuss how bad the sponsored results were. Since I took the screen shot, I have decided to include it here. The caption is, “Which one doesn’t fit?”

I really hope that maps ad is because I typed in a location and not because they are randomly spamming ads to their other services.

I have repeatedlypredicted that Google will expand its promotion of the Google Checkout program this year. Well, it seems they’re hastening the pace. Google is now offering $1 referral fees for people who forward them new Google Checkout users. The users you refer get a $10 discount. That means for the first purchase a user makes, Google loses out on $11! Not only that, but Google Checkout is currently free to stores that support it, costing Google another chunk of fees for credit card processing.

As I’ve asked before, what other product has Google marketed so aggressively, paying out everybody in the financial chain? Right now, Google is doing a land grab with Google Checkout, and its primary competitor is the already entrenched payment processors such as PayPal, 2Checkout, and even Amazon. If you’ve ever used the service, it’s pretty much like Google’s version of Amazon’s checkout system, except it works on any site that supports it.

For those of you who haven’t read my theory on this topic, Google is banking its future in text advertising on Google Checkout. To understand the theory, let me explain to you the CPA (cost per action) market, where people are paid out whenever someone makes a purchase. Then I will explain where Google Checkout comes into play.

The players:

Advertisers – These are the people who are selling stuff. Examples could be Coca Cola, Nike, or Apple. They pay Google to have ads show up on publisher web sites through AdSense.

The Ad broker – Google. They act as the middle man.

Publishers – This is you and I, e.g., the website that hosts ads. These ads exist to sell products for the advertiser. Ads you see on Google’s search results make Google a publisher as well, in some contexts.

How the CPA market works:

When a purchase is made, the advertiser pays the ad broker, and then the ad broker pays the publisher.

There is a strong incentive by the advertiser to under track in order to reduce the payout.

Tracking is done with cookies, JavaScript, and 1×1 pixel images. Many ad block programs cause under counting because they block the cookies or images.

If an order is fraudulent, there is often a great deal of manual work that must be done to “scrub” the customer list. This requires trusting that the advertiser does not remove excessive records. This can cause disputes when the broker tracks different numbers than what the advertiser reports.

Google Checkout’s role:

Google is now testing CPA ads. Up to this point, there was no real competitive advantage for Google, especially since there are already several heavily entrenched and well funded competitors in the market. Google Checkout helps even this out, a fact that is apparent by the timing of this new referral program (the day after the CPA tests began).

Google Checkout can track a purchase the moment it happens. Unlike competitors, users with JavaScript disabled or ad blocking programs would still be counted.

Tracking can be done by forwarding all Google related sales to the Google Checkout system. This means no cookies need to be used either. If someone clicks on a Google Ad, the URL they see makes them checkout using Google Checkout.

If later, a card turns out to be stolen or the customer demands a refund, Google can immediately adjust account balances to the publisher and advertiser (much like it does with click fraud with their current ads) without bias or human intervention.

Anybody with any real knowledge of the CPA network knows that it is very different than the CPC, aka “pay-per-click”, market. This is because the industry thrives on trust, human relationships, and lots and lots of human deal making. Google may change that with its classic “algorithm for everything” mentality, but, for now, it’s clear that Google has no plans to take the entire market. It seems like they are only interested in pure e-commerce advertising market (just a slice of the entire market).

So in the coming months, you should start seeing Google making power moves to get major retail chains to start using their checkout system. This won’t come easy because one of the things Google does is hide customers from the seller (advertiser). Not having customer contact information is bad for repeat business, so many larger retailers will resist Google. This is why Google is fighting from the bottom up: giving incentives to people like you and me to spread the word, one dollar at a time.